ECONOMYNEXT – Fitch Ratings has reaffirmed the National Long-Term Rating of Sri Lanka’s Fintrex Finance at ‘BB(lka)’ with a stable outlook. The rating agency also maintained the ‘B+(lka)’ rating on the company’s subordinated debentures.
Fintrex’s rating reflects its “expansion into riskier mobile financing, higher leverage and more volatile earnings” Fitch said.
“These weaknesses are balanced by acceptable asset quality and improved funding diversity.”
Fintrex’s business profile remains constrained by higher concentration risks relative to peers, Fitch said, reflecting its more limited franchise as one of Sri Lanka’s smaller finance and leasing companies.
The full statement is reproduced below:
Fitch Affirms Fintrex Finance at ‘BB(lka)’; Outlook Stable
Fitch Ratings – Singapore/Colombo – 05 Aug 2025: Fitch Ratings has affirmed Sri Lanka-based Fintrex Finance PLC’s National Long-Term Rating at ‘BB(lka)’ with a Stable Outlook. Fitch has also affirmed the ‘B+(lka)’ National Long-Term Rating on the company’s subordinated debentures.
Key Rating Drivers
Standalone Profile Underpins Rating: Fintrex’s rating reflects its smaller balance sheet compared with higher-rated peers, in addition to its greater growth appetite, expansion into riskier mobile financing, higher leverage and more volatile earnings. These weaknesses are balanced by acceptable asset quality and improved funding diversity.
More Conducive Operating Environment: We project Sri Lanka’s GDP growth at 4.3% in 2025 and 3.6% in 2026, supported by low inflation and accommodative monetary conditions on renewed economic activity. This follows real GDP growth of 4.8% yoy in 1Q25 and a 5.0% expansion in 2024, driven by the industry and service sectors, including a rebound in tourism after years of contraction and instability. That said, external headwinds from global tariff revisions and ensuing economic slowdown could challenge Sri Lanka’s economic recovery and affect the pace of growth.
Modest Franchise, Aggressive Growth: Fintrex’s business profile remains constrained by higher concentration risks relative to peers, reflecting its more limited franchise as one of Sri Lanka’s smaller finance and leasing companies. Its market share remains modest, at 1.2% of sector loans in the financial year ending March 2025 (FY25). This was despite a meaningful rise from 0.8% in FY23, with a CAGR of 40% over FY23-FY25 outpacing the sector’s 15%. Yet, recent high growth could introduce asset quality risks as the loans season.
New Lending Products: Fintrex has diversified its product suite over the past two years, mainly by introducing high-yielding mobile financing and gold lending. This expansion could test its risk management and underwriting capabilities – particularly in mobile financing, where credit risk may be higher due to lower recovery prospects. However, we expect four-wheeler financing to remain the core of Fintrex’s portfolio in the near term, supported by the company’s targeted product mix and the recent lifting of a longstanding vehicle import ban.
Acceptable Asset Quality: The company’s increasing exposure to riskier mobile financing may lead to a mild rise in delinquencies, but we expect its stage 3 loan ratio to remain below 10% over the next two years, provided economic conditions remain supportive. We believe Fintrex is more sensitive to economic shocks, given its higher borrower concentration relative to larger, higher-rated peers. Fintrex’s stage 3 loan ratio improved to 8.6% in FY25, from 11.2% in FY24. This was broadly in line with the sector average of 8.3% (FYE24: 14.7%).
Interest Margin to Improve: We anticipate upside to the company’s net interest margin, on an increased share of higher-yielding products and more favourable funding costs. Pre-tax profit remained stable in FY25, at 2.8% of average assets (FY24: 2.8%), as an improved net interest margin was offset by normalised credit costs following net recoveries in FY24.
Growth Weakens Capitalisation: We expect Fintrex’s capitalisation to weaken further in the near term, as continued rapid asset growth is likely to outpace internal capital generation. The tier-1 capital ratio declined to 13.5% in FY25, from 16.1% in FY24, while the total capital ratio increased to 18.3% (FYE24: 16.1%), backed by the issuance of a LKR1 billion subordinated debenture in March 2025. Fintrex’s rating also factors in the company’s commitment to maintaining a capital buffer of 2pp above the regulatory minimum tier-1 and total capital ratios of 8.5% and 12.5%, respectively.
Modest Funding: Fintrex’s funding base has gradually improved through an expanded customer deposit base and the recent subordinated bond issuance. However, its funding franchise and flexibility – as reflected by its cost of funds and share of unsecured funding – remain weaker than those of larger peers. Deposit funding, the primary source of unsecured funding for finance and leasing companies, accounted for 56% of Fintrex’s total funding in FY25 (FYE24: 56%), well below the sector average of 76%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The rating is sensitive to a change in Fintrex’s credit profile relative to that of other Sri Lankan issuers. Negative rating action could be triggered by a large deterioration in asset quality relative to peers, without an improvement in capital or provisioning buffer. Aggressive growth without maintaining an adequate capital buffer as planned or signs of earnings or liquidity pressure could also lead to negative rating action.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The rating is sensitive to a change in Fintrex’s credit profile relative to that of other Sri Lankan issuers. The rating may be upgraded if the company significantly reduces its customer concentration, perhaps due to a broader or more diversified franchise, while maintaining comparable asset quality with peers. This is provided the company maintains a balanced funding and liquidity profile, with leverage that is not excessive relative to peers with an acceptable regulatory capital buffer.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Fintrex’s Sri Lankan rupee subordinated debentures are rated two notches below its National Long-Term Rating. This reflects our baseline notching for loss severity for this debt class and expectation of poor recoveries in the event of default. We apply the Bank Rating Criteria in rating these instruments, as we view the prudential capital framework for finance companies to be closer to that for banks in Sri Lanka. There is no additional notching for non-performance risk, as the debentures do not contain going-concern loss-absorption or coupon-deferral features.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
Any change in Fintrex’s National Long-Term Rating would lead to corresponding action on its subordinated debt rating.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria. (Colombo/Aug5/2025)
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